How to choose a credit card
Find the best credit card for you
If you decide you need a credit card, it is important to choose
the best credit card to suit your situation.
Should I get a credit
Credit cards are a convenient way to pay for the things, but
convenience can come at a cost. Research has shown that people
often spend more when they use a credit card than they
would if they were using cash.
Before you apply for a credit card, think carefully about why
you want it, and how you will pay for it.
Avoid getting a credit card if you are using it to pay off other
debts. The higher interest rate and other fees and charges may cost
you more in the long run. Consider a no or low interest loan or
talk to a financial
counsellor if you are struggling with your finances.
If you're worried about spending too much, a debit card might
suit you better.
What is the best credit card for
The kind of credit card you should get depends on how you want
to pay off your debt. Credit cards have different features to suit
different types of spenders.
Credit card interest free periods
If you always pay off your credit card in full each month, look
for one that offers interest-free days. This means you pay no
interest for a certain number of days after making a purchase (for
example, 55 days).
These cards may charge higher interest rates and annual fees,
but if you pay off your debt within the interest-free period,
you'll avoid paying interest altogether, so the higher annual fee
may be worth it.
No interest free period credit cards
If you know you won't be paying your debt in full straight away,
consider a card with no interest-free days. You'll usually pay
lower annual fees and less interest, either from the day of
purchase or the day your monthly statement is issued.
Case study: Ricky always pays off his credit card
landed his first job after finishing uni and decided to get a
credit card for those times when he's caught without cash. After
comparing a few credit cards, he chose one that offers
interest-free days. He vowed to pay off the balance within the
"I'm still paying off my HECS fees from uni so I don't want to
get into more debt."
Honeymoon credit card rates
Sometimes credit cards offer an introductory or 'honeymoon' interest rate. Check how much
rate will rise at the end of the honeymoon period, and what fees
and charges come with the offer. A card with higher fees might wipe
out your honeymoon savings before long. The same principle applies
to offers of 'no fees for 12 months'.
How credit card balance transfers work
This is when you transfer your outstanding balance from one
credit card to another, often at a lower interest rate for a
certain time (for example, 4.9% for 6 months).
You can get the full benefit of this by paying off the balance
transfer amount within the balance transfer period. Just make sure
you check the interest rate that will apply once the balance
transfer period is over.
If you use your new card to buy something, your purchase will
usually attract the full interest rate of the new card (not the
special balance transfer rate). It is a good idea to check how
different credit card features may apply when you transfer your
balance to a new card. For example, you may be unable to take
advantage of any interest-free period on new purchases until the
balance transfer amount is paid in full.
Payments you make on your new card could be applied to the
balance with the highest interest rate (for example, purchases you
made at the standard interest rate or cash advances at the cash
rate, whichever has a higher interest rate). You could request your
credit card issuer to apply your payments in a different way, for
example, you could ask that any payments made during the balance
transfer period be applied to the balance transfer amount, even if
the interest rate is lower.
If you have not paid off the full balance transfer amount when
the balance transfer period ends, the amount remaining will be
charged at the standard interest rate or cash advance rate (which
may be higher).
Check the conditions of your card to see what rate applies and
find out how paying just a little bit more off your card each month
can save you interest.
Credit card calculator
Cashback, discounts and reward schemes
Here are some other features to consider when you are choosing a
Credit cards with cashback
'Cash back' credit cards give you back some credit on your
account. But the benefits are quickly outweighed if the card has a
higher than usual interest rate. If you don't pay the whole balance
off each month, this kind of offer is not for you.
Discounts on goods and services
Some credit card providers offer discounts on goods and services
purchased through their own or partner organisations. This can be a
great way to save money on items you are likely to purchase, but
you should check whether these savings will be outweighed by any
fees or higher interest on the card.
Credit card reward schemes
Some cards offer points for every dollar you spend on the card.
schemes for more information.
By law, credit providers must not charge more than 48% in
interest annually on credit cards (this includes all fixed fees).
Australian Deposit-taking Institutions (ADIs) such as banks,
building societies and credit unions are exempt from these fee
Credit card fees and
When you choose a credit card, check the fees and charges. These
can add a lot to the cost of your card and can include:
- Annual account keeping fees
- Fees for reward programs
- Fees for late payments
- Fees for exceeding your credit limit (a card issuer must get
your consent before they can charge you for this)
- International transaction fees
- Cash advance fees (which are charged in addition to interest on
Credit card purchases can attract a surcharge that some
retailers will pass on to you. You must be adequately informed of
any surcharge before you pay.
Where a surcharge is compulsory the retailer must clearly list
the surcharge alongside the price. Where the surcharge is optional
the retailer must clearly inform you of the surcharge and another
way you can pay that avoids the surcharge.
Ban on excessive surcharge fees
From 1 September 2016 large businesses will be banned from
charging excessive payment surcharge fees on
debit, credit and prepaid card transactions. This
means a business cannot charge a customer more than what it
actually costs them to process a payment. These rules will apply
to other businesses from 1 September 2017.
For more information see credit, debt and prepaid card surcharges
on the ACCC's website.
Some large stores issue their own cards, which operate like
regular credit cards but can only be used in that store, and
have much higher interest rates. Store cards can be an
expensive way to shop.
Before signing up for a store card, compare the interest rate
with other types of credit. The
benefits may not be worth paying a higher interest rate.
Be careful when you get a store card as part of an interest-free
deal. You might pay more in interest than a regular credit
How to compare credit
Here are some tools you can use to compare the interest rates,
fees, charges and features of credit cards to find the best one for
Key facts sheets
An easy way to compare cards is to use the 'key facts sheet'
available from credit card issuers. These contain
- Minimum repayment
- Interest rate that applies to purchases and
- Interest rate that applies to balance transfers and for
- Promotional interest rate (if any)
- Length of the interest-free period (if any)
- Annual and late payment fees (if any)
Some credit cards come with travel insurance. If this is
something you think you'd take advantage of then find out if your
provider offers it. Find out more about credit card travel
Credit card comparison websites
Comparison websites can be useful to compare the features and
fees of credit cards, but they do have some limitations. See our
article on using comparison
websites for more information.
It's worth shopping around to find the best
credit card for you. It might be easy to get a card with the
financial institution you normally use, but you could find a better
Last updated: 27 Jan 2017